Subscribe to our free, weekly email newsletter!


Transportation Best Practices: Dedicated trucking helps shippers sleep tight

With capacity already tightening and increasing federal regulations threatening to exacerbate the driver shortage, dedicated trucking is going to continue to grow at double-digit percentage rates—and help shippers get a good night’s sleep in the process.
By John D. Schulz, Contributing Editor
April 01, 2012

Dedicated trucking operations are booming. As the overall economy improves, shippers are increasingly choosing dedicated as a sure-fire way to guarantee capacity while simultaneously assuring themselves of top-notch service with one additional perk—the ability to sleep at night.

“As free-running truckload capacity becomes scarcer and more expensive, dedicated fleets are coming back into vogue,” says John Larkin, a leading trucking analyst for Stifel Nicolaus. “A shipper can sleep soundly knowing that his base load volumes are being handled at a high level of service and at a pre-negotiated cost, with perhaps some embedded cost escalators.”

As a result, dedicated is growing at near double-digit percentage rates. The logistics and transportation research firm Armstrong & Associates is estimating that dedicated contract carriage will hit $11.5 billion in revenue over the course of 2012, up 9 percent from last year when it grew 10.6 percent.

As the name implies, dedicated trucking involves fleets “dedicating” a certain percentage of its fleets to customers who can lock in capacity through long-term contracts. This guarantees capacity for shippers, gives fleets a consistent base of customers that don’t “churn” as much as normal dry van truckload customers, and guarantees drivers a predictable number of miles along very familiar routes that they may drive every day. “It’s a win-win-win for shippers, trucking companies, and receivers,” says Herb Schmidt, president of Con-way Truckload.

Big boys in the game

The biggest names in dedicated are also among the biggest names in trucking. The dedicated part of J.B. Hunt’s business was $907 billion in 2010, according to trucking industry analyst firm SJ Consulting. That was nearly a 20 percent jump over the previous years. Werner Enterprises’ dedicated business was $744 billion that year, a 14.5 percent jump. In total, the top 10 dedicated carriers did $5.7 billion in business in 2010, a 12.3 percent jump from the previous year, according to SJ Consulting.

This push for dedicated trucking actually began in 2008 and 2009 when the economy took a nosedive and a lot of one-way truckload companies were forced out of business, industry insiders say. The industry had a lot of idle capacity in the form of trucks parked along the fence.

Most for-hire carriers charge accessorial fees for “high touch” freight—those moves that require multiple stops, nighttime deliveries, lift gates, or highly complicated deliveries.

Previously, much of that freight was moved by leasing companies or the logistics arms of other trucking companies.

Then, about three years ago, asset-based companies with trucks just sitting around began to move into dedicated one- and two-stop deliveries to grow accounts with healthy profit margins—as much as 6 percent to 12 percent margin—through long-term contracts that ran as long as three years.

“You get out of the one-way long haul and you keep your drivers happy because they’re not on the road for weeks on end,” says UPS Freight spokesman Ira Rosenfeld. “As a result, your asset-based carriers are now in the business of providing dedicated truckload business.”

With capacity tightening and increasing federal regulations threatening to exacerbate the driver shortage, dedicated trucking is a growing option for many shippers.

“It’s growing because shippers are worried about capacity,” says Dan England, chairman of C.R. England, a carrier that will soon have about 1,600 trucks out of its total of 4,600 power units in its dedicated unit. “It’s also better for our business.”

Dedicated operations allow carriers to “take advantage of the benefits of a carrier and shipper working together,” says England. “There are so many positives to it.”

Other industry executives agree. “It allows carriers to maximize their drivers’ hours of service if you can work with multiple customers to create a continuous loop of freight, says Con-way’s Schmidt. “Everybody’s costs go down.”

Let’s take a look at three key market issues—drivers, regulations, and service levels—and see how they’re re-invigorating the growth of dedicated trucking.

About the Author

image
John D. Schulz
Contributing Editor

John D. Schulz has been a transportation journalist for more than 20 years, specializing in the trucking industry. He is known to own the fattest Rolodex in the business, and is on a first-name basis with scores of top-level trucking executives who are able to give shippers their latest insights on the industry on a regular basis. This wise Washington owl has performed and produced at some of the highest levels of journalism in his 40-year career, mostly as a Washington newsman.


Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

While the volume decline was steep, there was numerous reasons behind it, including terminal congestion, protracted contract negotiations between the Pacific Maritime Association and the International Longshore and Warehouse Union, and other supply chain-related issues, according to POLA officials.

Truckload rates for the month of January, which measures truckload linehaul rates paid during the month, saw a 7.9 percent annual hike, and intermodal rates dropped 0.3 percent compared to January 2014, which the report pointed out marks the first annual intermodal pricing decline since December 2013.

Largely leveraging the net positive impact of lower fuel prices, the Shippers Conditions Index (SCI) from freight transportation consultancy FTR made major strides in December, the most recent month for which data is available.

With the Pacific Maritime Association (PMA) and the International Longshore & Warehouse Union (ILWU) recently agreeing to a tentative agreement on a new five-year contract last weekend covering about 20,000 port employees at 29 West Coast ports following roughly nine months of stops and starts and acrimonious negotiations, the focus for all port and supply chain stakeholders is firmly on the future.

Ports of Los Angeles, Long Beach Plan to Cooperate on Environmental, Security, Legislative, Supply Chain Logistics and Marketing Initiatives.

Comments

Post a comment
Commenting is not available in this channel entry.


© Copyright 2015 Peerless Media LLC, a division of EH Publishing, Inc • 111 Speen Street, Ste 200, Framingham, MA 01701 USA